Operations Management Chapter 8: Location Strategies

Operations Management: Sustainability and Supply Chain Management - Chapter 8 Location Strategies

• Location decisions are crucial for firms, significantly impacting fixed and variable costs. These decisions are often made infrequently and are long-term commitments.
• Location decisions are increasingly global in nature.
• Location strategy aims to maximize the benefits for the firm. Options include expanding existing facilities, adding sites, closing existing ones and relocating.
• Location decisions require thorough consideration, as location-related costs become fixed post-implementation.
• Globalization's impact on location involves factors like market economics, communication, rapid reliable transportation, capital flows, and differing labor costs.
• Key Success Factors (KSFs) for location decisions include political risks, government policies and attitudes, cultural and economic issues, market location, labor quality and costs, supply availability, communication and energy, and currency risks. Region-specific factors can include corporate desires, region attractiveness, labor availability, utility costs, environmental regulations, government incentives, proximity to raw materials and customers, and construction costs. Site-specific factors encompass site size and cost, access to transportation systems, zoning restrictions, and proximity to services/supplies. Environmental impact and demographic characteristics are also critical.
• Labor productivity is not exclusively determined by wage rates; lower productivity can often increase total costs. Labor cost per unit can be calculated as (Labor cost per day) / (Productivity (Units per day)).
• Exchange rates and currency risks can significantly impact costs. Both tangible costs (like utilities, labor, and taxes) and intangible costs (like education, quality of life, and community) influence location decisions.
• Political risk, values, and cultural factors also affect location decisions. These include government attitudes toward private property and intellectual property, labor issues, absenteeism, and varying global attitudes toward punctuality, legal, and ethical issues.
• Proximity to markets and suppliers affects location decisions. JIT systems and high transportation costs can affect manufacturer choices. Perishable and bulky goods are strongly affected by transportation costs.
• Clustering of companies, often driven by resources like natural resources, information, capital access, and talent, affects the location decisions of both manufacturing and service industries.
• Geographic Information Systems (GIS) is an important tool for location analysis. GIS enables complex demographic insights and provides data across utilities, geography, and locations of major services.
• The factor-rating method helps evaluate various location options, assessing key success factors through weighted scores.
• Locational cost-volume analysis involves comparing location alternatives based on fixed and variable costs for expected production volumes. Break-even points can be calculated to determine where costs are equal between locations.
• The center-of-gravity method optimizes a distribution center's location to minimize distribution costs by considering market locations, volumes of goods shipped to those markets, and related transportation costs.
• Transportation models minimize total production and shipping costs from various supply points to demand points.
• Hotel chains use regression models to predict profitability, finding that variables such as price of inn, average income levels, population per inn and location of near colleges provide useful insights.